6848 53 Notes On Banking Regulation Act New 19 07 2011

July 19, 2011 Notes on Banking Regulation Act1949
1 | P a g e
BANKING REGULATION ACT
Adv. Vaibhavsinh Mane
The Karad Urban Co
Notes on Banking Regulation Act1949
v a i b h a v s i n h . m a n e @ g m a i l . c o m

Notes on
1949

BY
Adv. Vaibhavsinh Mane

Chief Legal Officer
The Karad Urban Co-Op. Bank Ltd Karad
(Scheduled Bank)
9970615000

v a i b h a v s i n h . m a n e @ g m a i l . c o m

2 | P a g e v a i b h a v s i n h . m a n e @ g m a i l . c o m

The Act The Act The Act The Act: :: :- -- -
Banking Companies Act 1949 wef 16.3.1949
Banking Regulation Act - -1949 wef 1.3.1966
S SS Structure: tructure: tructure: tructure:- -- -
PART I: PRELIMINARY
PART II: BUSINESS OF BANKING COMPANIES ( Sec. 6 to 36 A)
PART IIA: CONTROL OVER MANAGEMENT ( Sec. 36 AA to 36 AC)
PART IIB: PROHIBITION OF CERTAIN ACTIVITIES IN RELATION TO
BANKING COMPANIES ( Sec. 36 AD)
PART IIC: ACQUISITION OF THE UNDERTAKINGS OF BANKING
COMPANIES IN CERTAIN CASES ( Sec. 36AE to 36 AJ)
PART III: SUSPENSION OF BUSINESS AND WINDING UP OF BANKING
COMPANIES ( Sec. 36-B to 45)
PART IIIA: SPECIAL PROVISIONS FOR SPEEDY DISPOSAL OF
WINDING UP PROCEEDINGS ( Sec. 45-A to 45-X)
PART IIIB: PROVISIONS RELATING TO CERTAIN OPERATIONS OF
BANKING COMPANIES ( Sec. 45-Y to 45-ZF)
PART IV: MISCELLANEOUS ( Sec. 46 to 55A)
PART V: Sec. 56 - APPLICATION OF THE ACT TO CO-OPERATIVE
BANKS
SCHEDULES 5
Nos of Sections 56 ( 127 total)



DEFINATIONS & DEFINATIONS & DEFINATIONS & DEFINATIONS & EXPLANATIONS EXPLANATIONS EXPLANATIONS EXPLANATIONS
5.(1)(b) - "banking "banking "banking "banking" means the accepting, for the purpose of lending or
investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawal by cheque, draft, order
or otherwise;
5.(1).(c) Banking Company means any company which transacts the business
of banking
5.(1)(f) Demand liabilities are the liabilities which must be met on demand
and
time liabilities means the liabilities which are not demand liabilities
6 the forms of business in which the banking company may engage.
(1) In addition to the business of banking, a banking company may engage in any
one or more of the following forms of business, namely:
(a) the borrowing, raising, or taking up of money; the lending or advancing of money
either upon or without security; the drawing, making, accepting, discounting, buying,
selling, collecting and dealing in bills of exchange, hoondees, promissory notes,
coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates,
scrips and other instruments and securities whether transferable or negotiable or not;
the granting and issuing of letters of credit, traveller's cheques and circular notes; the
buying, selling and dealing in bullion and specie; the buying and selling of foreign
exchange including foreign bank notes; the acquiring, holding, issuing on
commission, underwriting and dealing in stock, funds, shares, debentures, debenture
stock, bonds, obligations, securities and investments of all kinds; the purchasing and
selling of bonds, scrips or other forms of securities on behalf of constituents or others,
the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or
valuables on deposit or for safe custody or otherwise; the providing of safe deposit
vaults; the collecting and transmitting of money and securities;
(b) acting as agents for any Government or local authority or any other person or
persons; the carrying on of agency business of any description including the clearing
and forwarding of goods, giving of receipts and discharges and otherwise acting as an
attorney on behalf of customers, but excluding the business of a 1[managing agent or
secretary and treasurer] of a company;
(c) contracting for public and private loans and negotiating and issuing the same;
(d) the effecting, insuring, guaranteeing, underwriting, participating in managing and
carrying out of any issue, public or private, of State, municipal or other loans or of
shares, stock, debentures, or debenture stock of any company, corporation or
association and the lending of money for the purpose of any such issue;
(e) carrying on and transacting every kind of guarantee and indemnity business;


(f) managing, selling and realising any property which may come into the possession
of the company in satisfaction or part satisfaction of any of its claims;
(g) acquiring and holding and generally dealing with any property or any right, title or
interest in any such property which may form the security or part of the security for
any loans or advances or which may be connected with any such security;
(h) undertaking and executing trusts;
(i) undertaking the administration of estates as executor, trustee or otherwise;
(j) establishing and supporting or aiding in the establishment and support of
associations, institutions, funds, trusts and conveniences calculated to benefit
employees or ex-employees of the company or the dependents or connections of such
persons; granting pensions and allowances and making payments towards insurance;
subscribing to or guaranteeing moneys for charitable or benevolent objects or for any
exhibition or for any public, general or useful object;
(k) the acquisition, construction, maintenance and alteration of any building or works
necessary or convenient for the purposes of the company;
The section prohibits banking company from taking part in trading and speculative activities
(case) Indian Specie Bank 1914
6(1) A Banking company may be engaged in business like borrowing , lockers , letter of credit
travelers cheque and mortgage
7 - Prohibits the use of Bank ,banking or banking company to a company other than bank
11 (amend 1962) minimum paid-up capital Rs. 5.00 lac (one state) Rs. 10.00 lac more than in one
place and if such place is situated either in Mumbai or Kolkata or both

Sec. Sec. Sec. Sec. 9. Disposal of non 9. Disposal of non 9. Disposal of non 9. Disposal of non- -- -banking as banking as banking as banking assets. sets. sets. sets.
Notwithstanding anything contained in section 6, no banking company shall hold any
immovable property howsoever acquired, except such as is required for its own use, for any
period exceeding seven years from the acquisition thereof or from the commencement of this
Act, whichever is later or any extension of such period as in this section provided, and such
properly shall be disposed of within such period or extended period, as the case may be:

Provided that the banking company may, within the period of seven years as
aforesaid deal or trade in any such property for the purpose of facilitating the disposal
thereof:

Provided further that the Reserve Bank may in any particular case extend the
aforesaid period of seven years by such period not exceeding five years

RBI G RBI G RBI G RBI Guidelines: uidelines: uidelines: uidelines:- -- -
The minimum paid up capital for
New Private Sector Bank Rs. 100 Crore Jan 1993
Local Area Bank Rs. 5.00 crore August 1996


Important Provisions: Important Provisions: Important Provisions: Important Provisions:- -- -
12.(1) The subscribed capital of a banking company must not be less than
the one half of the authorised capital and
the paid-up capital must not be less than one half of the authorised capital
Case Poona Bank
(amend -1994) maximum voting rights of a share holder is at 10% of the
total voting rights
Sec.17 Reserve Funds-
Transfer to its reserve fund a sum equivalent to not less than 20% of its profits
irrespective of whether or not its reserves have equalled the paid-up capital
(wef 31.3.2001, 25% of Net Profit (before appropriations) , after adjustment /
provisions towards bonus to staff
Sec. 18.1 Cash Reserve Ratio Scheduled Banks to maintain at-least 3% (5%
amendment 2006) of the demand and time liabilities by way of cash reserves
with themselves or by way of a balance in current account with RBI
Sec. 24.2 A.B , every banking company shall maintain in India in cash,
gold or unencumbered approved securities,
valued at a price not exceeding the current market price,
an amount which shall not at the close of business on any day be less than
25% to 40% of the total of its demand and time liabilities in India.
Sec.29 Accounts & Sec.29 Accounts & Sec.29 Accounts & Sec.29 Accounts & Balance Balance Balance Balance Sheet Sheet Sheet Sheet
Sec. 29 Every Bank has to publish its Balance Sheet and Profit and Loss
account as on 31st March- As per the formats given in the 3rd Schedule
The Central Government can amend the format with a minimum period of 3 months notice
Schedule VI of Companies Act 1956 is not applicable as far as the format is concerned

Sec. 30. Audit. 30. Audit. 30. Audit. 30. Audit.
The balance-sheet and profit and loss account prepared in accordance with
section 29 shall be audited by a person duly qualified under any law for the
time being in force to be an auditor of companies.



Form A Balance Sheet
Schedule 1 Capital
Schedule 2 - Reserves and Surplus
Schedule 3 - Deposits
Schedule 4 Borrowings
Schedule 5 Other Liabilities and Provisions
Schedule 6 Cash and Bank Balances with RBI
Schedule 7 Balances with Banks and Money at call and short notice
Schedule 8 Investments
Schedule 9 Advances
Schedule 10 Fixed Assets
Schedule 11 Other Assets
Schedule 12 Contingent Liabilities

Form B Profit and Loss Account
Schedule 13 Interest Earned
Schedule 14 Other Income
Schedule 15 Interest Expended
Schedule 16 Operating Expenses , Provisions and Contingencies
Sec. Sec. Sec. Sec. 31. Submission of returns. 31. Submission of returns. 31. Submission of returns. 31. Submission of returns.
The accounts and balance-sheet referred to in section 29 together with the
auditor's report shall be published in the prescribed manner and three copies
thereof shall be furnished as returns to the Reserve Bank within three months
from the end of the period
R RR Restrictions: estrictions: estrictions: estrictions:- -- -


Sec.10. Prohibits banks from holding any immovable property except for
personal use at-least for a period of 7 years
Sec.13. Restriction on commission, brokerage, discount, etc. on sale of shares
Sec.15. Restrictions as to payment of dividend
Sec.19 . No banking company is permitted to held shares in any company
30% of its own paid up capital + reserves or 30% of paid up capital of the
company which ever is less
Sec.20. Restrictions on loans and advances
A. Grant any loans are advances against its own shares
B.1. Any of its directors
B.2.any firm in which any of its directors is interested as partner,
manager, employee or guarantor

Important Sections: Important Sections: Important Sections: Important Sections:- -- -
22. Licensing of banking companies
22.4.The Reserve Bank may cancel a license granted to a banking company
26. Return of unclaimed deposits
34.A. Production of documents of confidential nature
35. Inspection:-
The Reserve Bank at any time may, and on being directed so to do by the
Central Government shall, cause an inspection to be made by one or more of
its officers of any banking company and its books and accounts; and the
Reserve Bank shall supply to the banking company a copy of its report on such
inspection.

36. Further powers and functions of Reserve Banks.
(1) The Reserve Bank may


(a) caution or prohibit to enter into any particular transaction or class of
transactions, and generally give advice to any banking company;
(b) on a request by the companies concerned and subject to the provision of
section 149[44A], assist, as intermediary or otherwise, in proposals for the
amalgamation of such banking companies;
(c) give assistance to any banking company by means of the grant of a loan or
advance to it;
(d) Prohibit the affairs of the banking company being conducted in a manner
detrimental to the interests of the banking company or its depositors
(i) require the banking company to call a meeting of its directors for the
purpose of considering any matter relating to or arising out of the affairs of
the banking company; or require an officer of the banking company to discuss
any such matter with an officer of the Reserve Bank;
(ii) depute one or more of its officers to which the proceedings at any meeting
of the Board of directors of the banking company or of any committee or of
any other body constituted by it; require the banking company to give an
opportunity to the officers so deputed to be heard at such meetings and also
require such officers to send a report of such proceedings to the Reserve
Bank;
(iii) require the Board of directors of the banking company or any committee
or any other body constituted by it to give in writing to any officer specified by
the Reserve Bank in this behalf at his usual address all notices of, and other
communications relating to, any meeting of the Board, committee or other
body constituted by it;
(iv) appoint one or more of its officers to observe the manner in which the
affairs of the banking company or of its offices or branches are being
conducted and make a report thereon;
(v) require the banking company to make, within such time as may be
specified in the order, such changes in the management as the Reserve Bank
may consider necessary
(2) The Reserve Bank shall make an annual report to the Central Government
on the trend and progress of banking in the country, with particular reference
to its activities under clause (2) of section 17 of the Reserve Bank of India Act,


1934, including in such report its suggestions, if any, for the strengthening of
banking business throughout the country.
(3) The Reserve Bank may appoint such staff at such places as it considers
necessary for the scrutiny of the returns, statements and information
furnished by banking companies under this Act, and generally to ensure the
efficient performance of its functions under this Act.

36AD. Punishments for certain activities in relation to banking companies.
(1) No person shall
(a) obstruct any person from lawfully entering or leaving any office or place of
business of a banking company or from carrying on any business there, or

(b) hold, within the office or place of business of any banking company, any
demonstration which is violent or which prevents, or is calculated to prevent,
the transaction of normal business by the banking company, or

(c) act in any manner calculated to undermine the confidence of the
depositors in the banking company.

(2) Whoever contravenes any provision of sub-section (1) without any
reasonable excuse shall be punishable with imprisonment for a term which may
extend to six months, or with fine which may extend to one thousand rupees,
or with both.

36AE, 36 AF . Power of Central Government to acquire undertakings of
banking companies in certain cases
36AG. Compensation to be given to shareholders of the acquired bank
37. Suspension of business High Court
38. Winding up by High Court
43. Booked depositors' credits to be deemed proved



PART IIIB: PROVISIONS RELATING TO CERTAIN OPERATIONS OF BANKING
COMPANIES
45Y. Power of Central Government to make rules for the preservation of
records.
The Central Government may, after consultation with the Reserve Bank and
by notification in the Official Gazette, make rules specifying the periods for
which
(a) a banking company shall preserve its books, accounts and other
documents; and
(b) a banking company shall preserve and keep with itself different
instruments paid by it.

45Z. Return of paid instruments to customers.
(1) Where a banking company is required by its customer to return to him a
paid instrument before the expiry of the period specified by rules made
under section 45 Y, the banking company shall not return the instrument
except after making and keeping in its possession a true copy of all
relevant parts of such instrument, such copy being made by a mechanical
or other process which in itself ensures the accuracy of the copy.

(2) The banking company shall be entitled to recover from the customer the
cost of making such copies of the instrument.
Explanation. In this section, "customer" includes a Government department and a corporation
incorporated by or under any law.

45ZA. Nomination for payment of depositors' money.
(1) Where a deposit is held by a banking company to the credit of one or more
persons, the depositor or, as the case may be, all the depositors together,
may nominate, in the prescribed manner, one person to whom in the
event of the death of the sole depositor or the death of all the depositors,
the amount of deposit may be returned by the banking company.
(2) Notwithstanding anything contained in any other law for the time being in
force or in any disposition, whether testamentary or otherwise, in respect
of such deposit, where a nomination made in the prescribed manner
purports to confer on any person the right to receive the amount of


deposit from the banking company, the nominee shall, on the death of the
sole depositor or, as the case may be, on the death of all the depositors,
become entitled to all the rights of the sole depositor or, as the case may
be, of the depositors, in relation to such deposit to the exclusion of all
other persons, unless the nomination is varied or cancelled in the
prescribed manner.
(3) Where the nominee is a minor, it shall be lawful for the depositor making
the nomination to appoint in the prescribed manner any person to receive
the amount of deposit in the event of his death during the minority of the
nominee.
(4) Payment by a banking company in accordance with the provisions of this
section shall constitute a full discharge to the banking company of its
liability in respect of the deposit:
Provided that nothing contained in this sub-section shall affect the right or claim which any
person may have against the person to whom any payment is made under this section.

45ZB. Notice of claims of other persons regarding deposits not receivable.
No notice of the claim of any person, other than the person or persons in
whose name a deposit is held by a banking company, shall be receivable by
the banking company, nor shall the banking company be bound by any
such notice though even expressly given to it:

Provided that where any decree, order, certificate or other authority from a court of competent
jurisdiction relating to such deposit is produced before a banking company, the banking company
shall take due note of such decree, order, certificate or other authority.

45ZC. Nomination for return of articles kept in safe custody with banking
company.
(1) Where any person leaves any article in safe custody with a banking
company, such person may nominate, in the prescribed manner, on
person to whom, in the event of the death of the person leaving the article
in safe custody, such article may be returned by the banking company.
(2) Where the nominee is a minor, it shall be lawful for the person making the
nomination to appoint in the prescribed manner any person to receive the
article deposited in the event of his death during the minority of the
nominee.


(3) The banking company shall, before returning any articles under this section
to the nominee or the person appointed under sub-section (2), prepare, in
such manner as may be directed by the Reserve Bank from time to time,
an inventory of the said articles which shall be signed by such nominee or
person and shall deliver a copy of the inventory so prepared to such
nominee or person.
(4) Notwithstanding anything contained in any other law for the time being in
force or in any disposition, whether testamentary or otherwise, in respect
of such article, where a nomination made in the prescribed manner
purports to confer on any person the right to receive the article from the
banking company, the nominee shall, on the death of the person leaving
the article in safe custody, become entitled to the return of the article to
the exclusion of all other persons, unless the nomination is varied or
cancelled in the prescribed manner:
Provided that nothing contained in this section shall affect the right or claim which any person
may have against the person to whom the article is returned in pursuance of this sub-section.

45ZD. Notice of claims of other persons regarding articles not receivable.
No notice of the claim of any person, other than the person or persons in
whose name any article is held by a banking company in safe custody, shall
be receivable by the banking company, nor shall the banking company be
bound by any such notice even though expressly given to it:
jurisdiction relating to such article is produced before a banking company, the banking company
shall take due note of such decree, order, certificate or other authority.

45ZE. Release of contents of safety lockers.
(1) Where an individual is the sole hirer of a locker from a banking company,
whether such locker is located in the safe deposit vault of such banking
company or elsewhere, such individual may nominate one person to
whom, in the event of the death of such individual, the banking company
may give access to the locker and liberty to remove the contents of the
locker.
(2) Where any such locker is hired from a banking company by two or more
individuals jointly and under the contract of hire, the locker is to be
operated under the joint signatures of two or more of such hirers, such
hirers may nominate one or more persons to whom, in the event of the


death of such joint hirer or hirers, the banking company may give, jointly
with the surviving joint hirer or joint hirers, as the case may be, access to
the locker and liberty to remove the contents of such locker.
(3) Every nomination under sub-section (1) or sub-section (2) shall be made in
the prescribed manner.
(4) The banking company shall, before permitting the removal of the contents
of any locker by any nominee or jointly by any nominee and survivors as
aforesaid, prepare, in such manner as may be directed by the Reserve
Bank from time to time, an inventory of the contents of the locker which
shall be signed by such nominee or jointly by such nominee and survivors
and shall deliver a copy of the inventory so prepared to such nominee or
nominee and survivors.
(5) On the removal of the contents of any locker by any nominee or jointly by
any nominee and survivors as aforesaid, the liability of the banking
company in relation to the contents of the locker shall stand discharged.
(6) No suit, prosecution or other legal proceedings shall lie against a banking
company for any damage caused or likely to be caused, for allowing access
to any locker, and liberty to remove the contents of such locker, in
pursuance of the provisions of subsection (1) or sub-section (2) as the case
may be.

45ZF. Notice of claims of oilier persons regarding safety lockers not
receivable.
No notice of the claim of any person, other than hirer or hirers of a locker,
shall be receivable by a banking company nor shall the banking company be
bound by any such notice even though expressly given to it:
jurisdiction relating to the locker or its contents is produced before the banking company, the
banking company shall take due note of such decree, order, certificate or other authority.
***************************************************
52. Power of Central Government to make rules
56. Act to apply to co-operative societies subject to modifications.





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